Finance Bill

Lord Ryder of Wensum Excerpts

Monday 26th July 2010 Lords Chamber

[Lord Ryder of Wensum]

My Lords, it is a great pleasure to follow my noble friend. I congratulate him on his fine maiden speech and, in particular, on his words about the dangers of inflation. As he said, my noble friend represented a Worcestershire constituency in the other place for 36 years, and I know he represented it with great distinction. He was a Minister, deputy chairman of the Conservative Party and served as chairman of the 1922 Committee for nine storm-tossed years. It is testament to his admired calm and strength of character that he managed to emerge from this experience with his sanity and humour still intact.

My noble friend is also an author. His books include The Cotswold Murders and The Cotswold Mistress. Disraeli once remarked:

“An author who speaks about his own books is almost as bad as a mother who speaks about her own children”.

What with murders and mistresses, my noble friend’s literary reticence does not surprise me in the least. We welcome my noble friend to your Lordships’ House.

The Chancellor’s Budget deserved praise for its aims, construction and delivery, but of course it was just a June hors d’oeuvre before October’s main course. I favoured broadening the VAT band rather than raising the scales. It would have yielded the same revenue and I fancy that Treasury officials recommended this option. It remains incongruous for the United Kingdom to keep one of the narrowest VAT bands in Europe while espousing the virtues of tax incentives to businesses and preferences for indirect taxes and lower direct taxes.

I supported the establishment of the Office for Budget Responsibility, but it must stay separate from the Treasury and free from ministerial interference, broadly along the lines advocated by the noble Lord, Lord Stern, earlier. It is required because circumstances have changed. During my spell as a Treasury Minister more than 20 years ago under my noble friend Lord Lawson, ministerial tampering with growth forecasts was strictly out of bounds. Yet it became clear each year under Gordon Brown that growth forecasts were manipulated for political purposes. Indeed, the noble Lord, Lord Mandelson, confirms this practice in his memoirs.

During our debates in the past three years, some noble Lords have heard me dissenting from the then Opposition’s policy of sharing the proceeds of growth adhered to by the Conservatives long after it became apparent that the Labour Government’s spending had emptied the kitty. Consequently, and in view of the grave condition of our public finances, I rued the Opposition’s vow to ring-fence the health and international development budgets.

My late noble friend Lord Bauer, a colleague of the noble Lord, Lord Desai, at the London School of Economics, would have raised an eyebrow over protecting overseas aid. He would have reminded us that it is a process by which the poor in rich countries often subsidise the rich in poor countries. Evidence of these government-to-government subsidies, fitting Bauer’s maxim, come from Afghanistan and elsewhere. Apparently, the Dubai construction industry is a beneficiary of siphoned off aid redirected by corrupt rulers. Doubtful schemes said to be assisted by British overseas aid include fraud in the Kenya education sector, 700 “ghost” teachers in Malawi and money spent on strengthening the voices of older people in the Ukraine.

Julian Harris of the International Policy Network, which scrutinises aid, said:

“It is extremely irresponsible to increase … aid … while at least a quarter of projects are failing”.

What provides Britain with better value for money, pound for pound: the ring-fenced DfID or the unprotected BBC World Service? Eight years ago, after the death of Lord Bauer, the noble Lord, Lord Desai, wrote that his views had won the respect of time—but not at DfID. Lord Bauer, a classical Smithian, would have raised another eyebrow; namely, that a Government in office for three months had failed to appoint a trade Minister.

Of course, it is heartening to hear the Prime Minister’s declaration about the need to attract inward investment and explore trade opportunities in emerging markets partly by obliging the Foreign Office to become more commercially minded. Yet can these outcomes be achieved unless the Foreign Office budget is protected? As it stands, the Foreign Office budget is about a quarter of the size of DfID’s. I would merge them, as of old, giving the Foreign Secretary control with a Minister of State responsible for DfID. I understand that up to 27 people are now entitled to sit around the Cabinet table. One fewer would be a start, still leaving no fewer than 18 more table sitters than at the height of our empire. It is right, of course, to reduce the numbers of Members of Parliament, but why not cut the number of Ministers too?

Last week, the Prime Minister spoke about competitiveness with great enthusiasm. His precise words were:

“We have got to fight the battle over free trade all over again”.

I am sure that he is familiar with the name of Professor Paul Krugman, a Nobel prize winner in economics. Krugman, when invited to define an economist’s creed, replied:

“I understand the principle of comparative advantage and advocate free trade”.

I wonder whether the Krugman creed applies to overseas aid or pages 16 and 17 of the coalition’s programme for government devoted to energy and climate change. These pages amount to at least a dozen public spending pledges worth more than £200 billion during the next decade. Ben Warren, a partner in Ernst and Young, said:

“We don’t know how the government intends to raise money, and we do not know the green investment bank is going to leverage in private capital”.

Most of the cost will ultimately fall on consumer bills. Funded that way, boosting the use of renewable energy may prove unaffordable.

Thus I was concerned over the weekend to read the Energy Secretary evangelising about the need to increase subsidised wind turbines when priority should be given to nuclear power. Your Lordships’ Economic Affairs Committee estimated that wind was at least 50 per cent more expensive per unit generated than nuclear. Whatever we think, the renewable targets will not be met. Gas may be the best answer to bridge the gap between 2015 and the new nuclear stations. Both gas-fired power stations and fuel cell technology in urban and rural areas should be studied in greater detail and with greater urgency.

Professor Dieter Helm from the Oxford Energy Institute has calculated that the added cost to business of the coalition’s energy plans could be as high as 25 per cent—hardly a spur to competitiveness. We already know that climate change policies constitute 21 per cent of our industrial bills and last year the burden of green taxes and regulations amounted to £26 billion. The ITEM Club has stressed that recovery will not come from consumers this time but from the business sector. My fear is that yet more additional costs could force manufacturing businesses abroad and limit our growth rate. A danger exists that the energy measures of the coalition as set out could damage our economy far more and far sooner than any projected global warming when the economy is in such a vulnerable state as it is to day.

The same anxieties haunt Congress. It and the president are unwilling to risk higher taxes in order to subsidise China. Even President Sarkozy, never the soundest man on parade, has warned about green protectionism; and Canada, a Kyoto signatory, has increased its emissions more than the USA, a Kyoto dissenter, simply to protect its competitiveness on world markets.

I support the coalition and its general direction, but it must not impose unnecessary costs on British industry in the name of fashionable doctrines, however well intentioned. Otherwise it will find that growth is blunted and our better manufacturers move abroad for fear of lacking competitiveness.